Entrepreneurs like to have as much control over their businesses as possible, but if things go well, they will need to delegate. If you’re thinking of becoming an employer, it’s important to know your legal and tax obligations.
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The legal obligations of employers vary depending on your industry, the size of your business, and the type of employees you take on. In this article we look at when you have to register as an employer, and rules that apply to everyone.
If you pay a staff member over £112 per week, you must register with HMRC as an employer and sign up to PAYE, even if you only employ yourself as a director. As soon as a worker’s earnings pass the primary threshold of £155 per week, or £8060 per year, you must make national insurance (NI) contributions, unless they are exempt from NI. (See who is exempt.)
You don’t have to register as an employer if only using self-employed workers – freelancers, contractors, consultants – or agency staff. Using these workers can keep admin down, save money, free you up from red tape, and allow you flexibility, which helps clarify what permanent staff you might need in the long-run. However, if you constantly rely on external workers, a regular employee might come at a cheaper hourly rate, with added positives.
You should also be aware that the label you put on a relationship is not conclusive legally. If the reality is that workers are engaged more as employees, even if you describe them as freelancers or consultants in contracts or otherwise, they may still have employment rights. The main criteria for deciding the status is known as the control test. In other words, do you control the place of work, hours worked, tools used and so on. if you do, it's more likely to be an employment relationship.
If you need advice on these issues, not just tax and financial buit also legal and contracts drafted or negotiated for your freelancers, consultants or contractors, we can help. We offer highly cost effective advice and services which are provided by highly experienced and qualified professionals.
Most employees are eligible for minimum wage. Your own children and members of your household are not. In some circumstances self-employed workers and agency staff aren’t either, but it’s unlikely they’ll charge less.
Even if you don’t have to register for PAYE, you still have to keep payroll records. All registered employers must have employers’ liability insurance. The cost varies depending on the business, though it is rarely prohibitive. You must check each worker’s legal right to work in the UK, and, if working with vulnerable people, apply for a DBS (CRB) check. If employing someone for longer than a month, you must provide a written statement of employment. While written contracts are not a legal requirement, they protect both signatories, and help define a workers’ remit. Health and safety regulations are different for each industry.
Work, rest and play
You may not require employees to regularly work more than 48 hours per week, or more than 40 if they’re under 18. They must be allowed at least 1 entire day off per week or 2 days off per fortnight, 11 hours’ rest between working days, and a 20 minute break if working more than 6 hours. They are entitled to 5.6 weeks’ paid annual leave pro-rata.
Coughs, colds and babies
Statutory sick pay of £88.45 per week isn’t mandatory until the fourth day of absence. You may require your employees to provide a doctor’s note if ill for longer than seven days.
Notification of a pregnancy or adoption must be given 15 weeks before the due date, and employees must have worked for you for 26 consecutive weeks to be eligible for maternity or paternity leave and pay. Statutory leave and pay obligations are quite complicated, and new legislation allows parents to share up to 50 weeks of leave and 37 weeks of pay.
All staff must be assessed for auto-enrolment. From 22 years of age, workers earning above £10,000 (2015) a year must be auto-enrolled or entered into an approved workplace pension.
It’s important to know your minimum requirements as an employer, but it’s also a good idea to take employees’ welfare seriously.
You should also be aware of the tax implications of becoming an employer, which we’ve written about in How to Become an Employer: Part 1 – Tax and Financial Implications.
If you’re thinking of becoming an employer, we can help you navigate the confusing rules and regulations, and also help plan for the costs. We are full-service accountants in London offering tax, accounting and legal services, from payroll, to HR, to pensions.